Byers calls for reform of parent tax allowances

Stay-at-home parents should be allowed to transfer their tax allowance to their working spouse as part of the government's bid to recognise the cost of caring for young children, according to one of Tony Blair's closest allies.

The tax allowance could be transferred for up to two years after the child's birth under the proposal being costed by the Treasury.

Stephen Byers, one of the prime minister's inner group working on the election manifesto, believes the proposal would help prevent the fragmentation of the Labour coalition of middle and working class.

He also proposed a pregnancy benefit for poorer women, starting three or four months before the child is due in an attempt to improve its health at birth.

Mr Byers, now working with Alan Milburn on the manifesto, said personalised welfare services must be one of the main levers for improving public services.

Insisting the party could not afford a "safety first" manifesto, he told the Guardian that in a time of almost full employment, Labour needed to do more to provide for carers and working mothers.

The government has said it will look at the right to request flexible work for carers as well as extending the right for parents of very young children.

Mr Byers said Labour needed to do more to help parents of young children, including better-off families.

He said that if the annual personal tax allowance of £4,745 was in effect added to that of the working spouse "it would be possible for someone on low pay to be earning nearly £10,000 before they had to pay any income tax. If you are a higher rate taxpayer on 40% you also benefit considerably since it increases dramatically the amount of income on which you do not pay any tax".

He has been given Treasury calculations showing that the cost in lost tax of allowing married people to transfer their allowance would be about £340m while the child was between one and two.

Mr Byers's separate idea of a pregnancy benefit is designed to build on the work of SureStart, the policy designed to prepare children for school. Figures show that the babies of parents on income support are more likely to have children below the recommended birth weight.

Mr Byers said: "Perhaps it is right that a mother in the final four months of the pregnancy receives a supplement to their income support to recognise that it is better they are well fed. Children born below the recommended birth weight underperform for a long period. The danger for Labour in office is that we are seen to be defending things as they are. We must be insurgents challenging and changing, what is already there."